Advancing Issues Update

Here is an update to my last post 45 minutes ago. The market continued to rally during that time and today's count of the number of issues advancing in price on the New York Stock Exchange was higher than anytime during the past three months (red line on the chart above). Coming in the context of a bullish divergence this is incredibly bullish action.

 

Advancing Issues Breakout

There is still 45 minutes left until floor trading on the New York Stock Exchange halts for the day. Even so, I thought I would alert you to the behavior of the daily count of the number of issues advancing in price on the NYSE. This is the chart you see above this post.

Evidently this indicator will have broken above its high points of the past two week (dashed line) as well as above its highs of the past month (solid line) by the close of trading today. In the light of the ongoing divergence I last discussed here, this is very bullish action. The stock market in the USA is headed much higher from here.

 

Eurodollars

Here is a daily chart of the March 2006, 3 month eurodollar futures. I've drawn in the bear market boxes I have been using for the past 18 months for all the 3 month eurodollar contracts.

As you can see eurodollar traders seem to be anticipating a halt to the Fed's policy of steady, quarter point increases in the Fed funds rate. The market has really taken off the past couple of days and I think Katrina had more than a little to do with this.

In any case you can see that the market is approaching the 1/2 point of its current box near 95.97. I think this is a minimum target for this rally and I think a continuation up to the top of the box near 96.20 is a least an even money bet.

But the bear market is not over. As I said in my 2005 bond market forecast, any pause by the Fed will end once people start to see a very strong economy in 2006. I think next year will be a bearish one for the bond market in general and I think we will see cash 3 month eurodollars trading at 4.75% by the end of 2006. This would probably mean that the futures will drop below 95.00 sometime next year.

 

Chicago Merchantile Exchange A

Here is an updated daily chart of Chicago Merchantile Exchange A stock.

As you can see the market has been resting on the 1/2 point of its current box. I think it will rally with the averages and move up to the top of the next box at 363. My bull market target is still 411.

 

Sears Holdings

Sears holdings has dropped quite a bit more than I had expected. Apparently the combination of high gasoline prices and worries about a slowing economy have hurt the entire retail sector.

Even so, this is a bull market and I think the economy will be even stronger in 2006 than it is now. I think that SHLD will move above its 162 top but will probably not reach my original 252 target because it has started to underperform the market averages a bit.

The low of the current drop from 161 will occur near the bottom of the current box near 130 and SHLD will rally to new highs from there.

 

IBM

Here is an updated daily chart of IBM. The market has reacted about a box from its July 19 top near 85 and is now resting at the 1/2 point of its current box. I am bullish on the averages and I think IBM will move up with the general market. My bull market target for IBM is 106.

 

Bonds and Notes

As you can see from the updated hourly charts above, the September bond and 10 year note futures have rallied relentlessly ever since their lows on August 9. It is quite unusual for any market to move upward for three weeks without a significant break of a previous day's low. But this is what we have seen in the bonds and notes. It is an eye-popping show of strength and is one more piece of evidence that the bonds are headed for the 121-123 zone and the notes for 116

I notice that the short end of the market is strong too so I am beginning to think that bond traders are anticipating a pause in the Fed's string of interest rate increases, perhaps in response to the economic damage caused by Katrina.

The bonds are now likely to react a box or so from the 1/2 point of the current box at 118-20 and the notes will also react a box or so from the top of the current box at 113-04.

 

Guesstimates on August 31, 8:55 am ET

S&P Futures: A rally to 1268 has begun.  Support today is at 1202.

Bonds: The 117-30 level is resistance and I think the bonds will drop a box or so from there. The market will then resume its rally into the 121-123 zone.  

10 Year Notes: Resistance today is 112-22 and the notes will then drop a box or so before resuming the move up to 116.

Eurocurrency: The market will hold support at 121.70 and then rally to 125.60.  

October Crude: There is very strong resistance in the 70.00 to 70.50 zone and I think the market will drop below 66.00 in a few days.

December Gold: The market should hold the 436 level, the bottom of its current box.  The next step up will carry to 468.      

Google: 272 is support; the next move up will reach 343.  

 

Bonds and Notes

Here are updated hourly charts of pit trading in the September bond and 1o year note futures.

I had been anticipating a reaction of about a box in each market but instead both markets continue to move higher. This show of strength give me even more confidence that the bonds are headed for the 121-123 range and the notes to 116 over the next couple of months.

Right now I think the bonds will begin a reaction of about a box from the top of the current box near 117-30. The notes will probably start their reaction from the 1/2 level of the current box near 112-22.

 

S&P

Here is a compressed and updated hourly chart of pit trading in the September S&P futures going back to early July.

The first low you see on the chart was the low that occurred on July 7 right after the London terrorist attack. The news itself came very early in the morning New York time and in electronic trading the market dropped to 1167 (the first blue line on the chart). When pit trading started in Chicago that morning the market traded at 1186.50 and went up from there. The drop from the preceeding high at 1225.20 on June 17 to the July 7 low was 58 points.

I like to use precedents such as this one to get a handle on the likely terminal points of trends. In the current situation the market made another high at 1249.20 on July 29. Another drop of 58 points would carry to 1191. The low Sunday night after the hurricane news was 1194.20.

This gives me quite a bit of confidence that 1194 was the low of the current reaction.

The second factor which reinforces this deduction is that as an uptrend progresses low points occur at successively higher box levels. The July low occurred at the low point of the current box near 1180. So it makes sense to expect that the current reaction would end at the next higher box level, i.e. the 1/2 point of the current box near 1202.

 

Eurocurrency

Here are updated daily and hourly charts of the September eurocurrency futures.

I still think that the market will rally to roughly 126.70. This is the top of the second rally box on the daily chart and just below the top of the current bear market box.

On the hourly chart you can see that the market has again hit the bottom of its current short term box and I think that it is now headed upward. The 125.70 level is the top of the next higher short term box and this seems like a reasonable short term target.

 

Crude Oil at 11am ET

The markets seem to be dancing to crude oil's tune so I thought you might like to see an updated hourly chart of October crude oil.

Near the close of pit trading yesterday the market dropped to the bottom of its box at 66.30 and rallied. This morning I thought that it would stop at the top of the corresponding box at 68.20, but as you can see this didn't happen. Instead October crude rallied all the way to the pair of very strong resistance levels near $70 : the top of the long term box at 70.40 and the top of the trading box near 70.10.

I think prices will drop from here and will soon be below 66.00.

 

Guesstimates on August 30, 8:45 am ET

S&P Futures: A rally to 1268 has begun. Support today is at 1202.

Bonds: I think the bonds will drop to 115-28. From there the market will resume its
rally into the 121-123 zone.

10 Year Notes: Resistance today is still 111-31 and the notes will then drop to 110-30 before the rally resumes.

Eurocurrency: The market has dropped back to support at 121.70. I think this level will hold and that a move up to 125.60 will begin.

October Crude: The market rallied off of the low of a box at 66.30 late yesterday and now has reached the top of a box at 68.20. I think it will turn down from here and drop to the bottom of the next lower box at 64.40.

December Gold: The market broke below support at 442 last night but should hold the 436 level, the bottom of its current box. The next step up will carry to 468.

Google: 272 is support; the next move up will reach 343.

 

NYSE Advancing Issues

As I have noted here, here and here, the S&P decline from its top at 1248 has recently been accompanied by divergent behavior in the daily number of issues which advance in price on the New York Stock Exchange.

I have updated this information in the charts above. Today the averages again made new reaction lows, but the daily number of advancing issues and both its 5 and its 10 day moving averages stayed above the lowest points seen during the drop from 1248. This indicates that the market has gradually been strengthening despite the drop in the averages during the past 10 days. This coupled with the fact that the S&P futures today bounced off of the 1/2 point of their short term box means that the short term trend has once again turned upward.

I think the market is now headed for 1268.

 

Crude Oil at 1pm ET

Here is a chart of October crude oil at 1pm ET.

The market has broken below a box boundary around 68.20 and is now headed for the bottom of its current box near 66.30. Within a few days it should go much lower than that.

 

Gold

Here is an hourly chart of December gold which shows both pit and electronic trading.

The market has been resting at the bottom of its current box near 442 for the past week. Soon it will start a rally to the top of the next higher box around 470.

 

S&P

Here is an updated hourly chart of pit trading in the September S&P futures. Last night the market dropped as low as 1194.20 in electronic trading but as you can see it opened this morning in Chicago right at the 1/2 point of its current box at 1202.

I think the market has begun an uptrend which will carry it to the top of the next box around 1268, and eventually much higher than that.

 

Crude Oil at 9am ET

I thought you might like to see an updated hourly chart of October crude oil futures before pit trading starts in New York today.

The market surged to 70.80 just after electronic trading began last night. This was the immediate response to the hurricane Katrina news - this storm is expected to cause major damage to New Orleans and the Gulf coast - including oil production and refining facilities.

My inclination is always to fade news that sends the market to important support or resistance levels and this instance is no exception. As you can see from the chart the market has reached the top of its long term box as well as the top of its short term box. (Ignore the big price bar at the left of the chart - this resulted from a garbled electronic tranmission of price data.)

I think the market is at a decisive long term turning point for other reasons as well. Among them are excessive levels of bullish sentiment as manifest in recent cover stories in the New York Times and in The Economist magazine.

 

Guesstimates on August 29, 8:45 am ET

S&P Futures: The hurricane news sent the market to 1194, below the 1/2 point of the current box at 1202. I think this is an overreaction to the news and that the S&P will finish the day above 1202. A rally to 1268 will start soon.

Bonds: I think the bonds will again close below 116-30 resistance today and then drop to 115-28. From there the market will rally into the 121-123 zone.

10 Year Notes: Resistance today is still 111-31 and the notes will then drop to 110-30 before the rally resumes.

Eurocurrency: The market has held support at 121.70 and is now on its way to 125.60.

October Crude: The hurricane news sent crude to 70.80 overnight, right at the top of its long term box as well as at the top of another short term box. The market is going down big from here.

Gold: Support is at 442 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

Oiloholics

Here is a link to the most recent cover story in The Economist newsweekly.

The cover depicts the USA and China as "drunk" on oil. Rising oil prices are a problem according to The Economist. They also assert that high oil prices are the Fed's fault because the Fed reflated the US economy after the 2000-2002 stock market crash. Evidently The Economist shares with many other elite commentators an aversion to economic growth, especially if it comes in the USA. No surprise then that they conclude the solution is that the USA should raise gasoline taxes to European levels (or beyond) !!!

I think this cover story is another sign that the bull market in crude oil is over. Here is another.

Look out below !!

 

Bad Mouthing Baidu

Here is a link to a column by John Shinal on MarketWatch.com.

To be fair, he is not just bad mouthing Baidu the company but also the whole IPO process for dot com shares. This is just another manifestation of opinion leaders' negativity towards tech IPO's and their profit potential.

I still haven't heard anyone say good things about Baidu on the Street, so I am still sticking with my 270 upside target (subject to revision according to these considerations). Here is my previous post on Baidu.

 

Crude Oil

I have been trying to pick the short term top in October crude oil, so far without much success.

Here is an updated hourly chart. Ignore the big spike that appears in the upper part of the chart because is just the result of bad quote transmission.

As you can see the market has been trading around both sides of the 1/2 point of the current box near 67.20 and now is headed for the top of the box near 68.20. Notice that in overnight trading a few days ago the market actually traded briefly at 68.00. I expect a peek above 68.00 and then a big break.

The other thing worth remembering is that crude is very close to the top (blue line) of its second long term box at 70.40. This is one reason (among several) that I am long term bearish on crude.

 

Bonds and Notes

Here are the updated hourly chart of the September t-bond futures and 10 year note futures.

Both markets are in uptrends which began from lows on August 9. Over the next couple of months I expect the bonds to move into the 121-123 zone and the notes to reach the 116 level.

Predicting temporary highs in an uptrend is difficult business as my efforts in the bonds and notes over the past week have illustrated. I am still working with the boxes defined in the last downtrend since they still seem to be controlling both markets' fluctuations.

As you can see in these charts the bonds this morning have reached the 1/2 point of the current box while the notes have been trading a bit above their correpsonding 1/2 points for the past couple of days. I have other reasons for thinking both markets will start reactions of at least a box from this morning's highs. If I am wrong about this then the most I see before such a reaction begins is a rally to the top of the current boxes in both markets.

 

Guesstimates on August 26, 8:50 am ET

S&P Futures: The 1/2 point of the current box at 1202 is now support and from there I think the marketwill start a rally to 1268. Meantime resitance is at 1220.

Bonds: 116-30 is still resistance today and from there the market will drop to 115-04 before resuming the rally into the 121-123 zone.

10 Year Notes: Resistance today is still 111-31 and the notes will then drop to 110-30 before the rally resumes.

Eurocurrency: The market has held supuport at 121.70 and is now on its way to 125.60.

October Crude: The market will hold resistance at 67.40 and begin a drop to 60.50.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

S&P Rallies

In yesterday's S&P post I said that the market would now drop to the 1/2 point of its current box near 1202 before the move up to 1268 can begin.

In the meantime it can be helpful to visualize the extent of any rally that might occur before the 1202 level is reached.

There are two methods I use to estimate the extent of likely reactions against the trend. The first is my box theory. In the case of the S&P move down from 1248 I estimate that the short term trading boxes for this drop are 12 points wide, but I have not drawn them on the hourly chart above to avoid confusion. In any case, a normal reaction against the trend is generally a box in length so a rally from 1209 should carry no further than 1221.

The second method I use as a check on my box theory calculations is to look at the extent of previous reactions in the same trend. In this case I have identified 4 previous rallies in this downtrend and marked them by solid blue lines on the hourly chart. These 4 rallies moved the market up anywhere from 10 to 13 points. So a rally from 1209 on this basis would end anywhere from 1219 to 1222.

My point is that a rally into the 1219-1222 zone would be normal and would not mean that the move down from 1248 is over.

If I thought that this drop would go much further than 1202 then I would look to sell in the 1219-1222 zone.

 

Guesstimates on August 25, 8:45 am ET

S&P Futures: The 1/2 point of the current box at 1202 is now support and from there I think the marketwill start a rally to 1268.

Bonds: 116-30 is still resistance today and from there the market will drop to 115-04 before resuming the rally into the 121-123 zone.

10 Year Notes: Resistance today is still 111-31 and the notes will then drop to 110-30 before the rally resumes.

Eurocurrency: The market has held support at 121.70 and is now on its way to 125.60.

October Crude: The market will hold resistance at 67.40 and begin a drop to 60.50.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

S&P

During the last hour the September S&P futures broke decisively below what I thought would be support at 1217. This means that the market is headed for the 1/2 point of its current box near 1202. The advancing issues divergences which I discussed yesterday are still intact and I still believe that the next big move from here will be upwards.

 

Crude Oil

This morning crude oil was tested by the weekly release of the inventory numbers. As you can see in the hourly chart of October Crude above the market zigged and zagged a bit on the news but basically seemed indifferent. Then later in the day it moved decisively above the top of its most recent box. I still think this market is headed for a big break soon but meantime it will rally to the 1/2 point of the current box at 67.40.

 

Going Up From Here

Here is an updated hourly chart of Google. The solid blue line on the right of the chart is support level I calculated for you in this previous post. I think GOOG has now started a new up leg. The first upside target is the 1/2 point of the current box around the 292 level.

 

Bearish Sentiment in Stocks

I think the most remarkable thing about the bull market which started in October 2002 from the S&P 500 low at 768 is the unwillingness of investors to enjoy their good fortune. After every modest drop in the averages during the past three years bearish sentiment has emerged quickly and has risen to levels normally seen only at bear market lows. Evidently the scars of the 2000-2002 bear market run deep.

In judging the state of market sentiment I place much more emphasis on what the average member of the public thinks than on "expert" opinion. That is why I like to gather evidence for my "contrary opinion" analysis from the news media rather than from surveys of expert opinion.

There is an interesting source of data about the views of "John Q. Public". It is the Ryex cash flow ratio compiled by DecisionPoint.com. (You have to be a subscriber to access this data but I think the $20/month cost is a bargain!)

The cash flow ratio has as its numerator the sum of the cash flow into Rydex bear funds plus the level of assets held in Rydex money market funds. This sum is a measure of the intensity of bearish sentiment. The denominator of the ratio is the level of assets held in Rydex bull market funds and dividing by this denominator serves to "normalize" the numerator so that comparisons across time are easier to make.

The chart above by DecisionPoint.com shows the Rydex cash flow ratio over the past two years. The scale is inverted so that high levels of the ratio (associated with high levels of bearish sentiment) show up at low levels in the chart, etc.

The most striking thing about this chart is that the Ryex cash flow ratio is now very close to the levels it reached last April and also in August 2004. Both were important intermediate term low points in the S&P and good times to put cash to work in stocks. The reason this current level of bearishness is remarkable is that the S&P 500 has dropped only 30 points from its July top as compared to the 100 point drops in the previous two cases cited.

This shows that "John Q. Public" is trying to pick the top of the current bull market. I don't see how he can succeed in this effort. This gives me a lot of confidence in my bullish stance.

 

Guesstimates on August 24, 8:40 am ET

S&P Futures: I think the market will hold 1217 support and start a rally to 1268.

Bonds: 116-30 is resistance today and from there the market will drop to 115-04 before resuming the rally into the 121-123 zone.

10 Year Notes: Resistance today is 111-31 and the notes will then drop to 110-30 before the rally resumes.

Eurocurrency: The market will hold supuport at 121.70. The next step up will carry to 125.60.

October Crude: The market will be tested by the petroleum status report at 10:30 am ET today but I think any bullishresponse will be short lived and that market will begin a drop to 60.50.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

Divergence Continues

Here are two daily charts which update my posts here, here and here about the the current bullish divergence between the NYSE advancing issues numbers and the behavior of the S&P 500 index. The index made another new reaction low today so the divergence continues sending its bullish message to all who will listen.

 

New Baidu Boxes

Baidiu.com has traded long enough for me to get a better handle on its price boxes. The boxes I had been working with were just multiples of its IPO price of 27 but were not very useful.

The new price boxes are shown in the updated hourly chart you see above. They are 40.72 points high. Yesterday BIDU dropped to the bottom of its second box and also to the level which is 1/2 its all time high at 153.96. I commented yesterday on my plan for handling BIDU going forward. I think a big rally will develop from yesterday's low.

 

Bold and Right

A wealthy, semi-retired speculator was walking with his teenage granddaughter one day. The girl asked him, "Grandpa, how did you make so much money trading?"

The old man thought for a minute and said, "Well, you have got to be bold and you have got to be right!"

She asked, " What happens if you are bold and wrong?"

"Then you just go down with the ship!" , he replied.

Above you will see an updated hourly chart of October crude oil. I am predicting the market will go down from here and soon reach its short term target of 60.50. I am bold. But will I be right? I think so!

 

Don't Sell A Dull Market Short

Take a look at Mark Hulbert's latest column on MarketWatch.com. He observes that while the averages have traded in a narrow range over the past 4-6 weeks short term stock market timers have grown increasing bearish. This has bullish implications for stock prices.

This observation is consistent with the message of the Rydex Cash Flow Ratio which I discussed a short while ago.

The other interesting thing about the behavior of the stock market averages since January 2004 (a period of 19 months !) is that we have seen many, sometimes extended, periods of essentially sideways action puncuated by a brief, sharp advances or declines. This sort of behavior is the main identifying characteristic of George Linday's Three Peaks and a Domed House formation. I last commented upon this here where I said that it implies that the market will rally into December of this year. This too is consistent with the bearish condition of short term market timer sentiment.

 

Guesstimates on August 23, 8:30 am ET

S&P Futures: I think the market will hold 1217 support and start a rally to 1268.

Bonds: It still looks like the bonds will drop to 115-04 before resuming their rally into the 121-123 zone.

10 Year Notes: I think the notes will drop to 110-16 before the rally resumes.

Eurocurrency: The market will hold supuport at 121.70. The next step up will carry to 125.60.

October Crude: The market will now drop to 60.50.

December Gold: Support is at 444 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

Low At Hand

For the past few days the September S&P futures have traded above and below the low of the box at 1224. I think this market is headed up from the low we made today at 1217.70.

I have a number of reasons for this prediction but perhaps the simplest one is the behavior of the New York Stock Exchange advancing issues number. I have recently commented on this indicator here and here.

The first chart above this post is an updated hourly chart of the September S&P futures. It has dropped nearly to its August 18 low at 1217.40 and may well break that low by a bit later today.

The second chart shows the daily number of NYSE advancing issues (black line) and the 10 day moving average of this number (red line). You can see that as the market has traded sideways the past few days the daily advancing issues number has made higher lows. Moreover, the 10 day moving average has already turned upwards.

So we see some subtle signs that the general market is strengthening even as the S&P is trading sideways to down. Since I am bullish on the longer term trend I feel comfortable interpreting this as a sign of an imminent low point.

 

Bye Bye Baidu ?

Here is an updated hourly chart of Baidu.com. I thought it wouldn't drop much below 90 but I was wrong.

Every Wall Street analyst I've read hates this stock. Lot's of people have been eagerly shorting it. It is obvious to everyone (including me!) that the stock price way overvalues the company. At least one of you predicts BIDU will drop to 14 over the next year!

Is it time to give up on BIDU ?

The right way to handle a situation like this one is to find a comparable company and compare stock price performance. Then compare performance relative to the market averages.

My choice for comparison is Google. Right now Google is selling around 275, about 220% above its IPO price of 85. BIDU at 75 is about 175% above its IPO price of 27. It has been more than a year since Google's IPO and only a bit more than a week since Baidu's IPO so I would rate this comparison favorable to BIDU. On the other hand BIDU has dropped 50% from its post - IPO high at 154 while GOOG is down only about 16% from its high at 320. So this comparison favors GOOG. Both stocks have recently made new bull market highs along with the S&P 500, so there is no adverse comparison here for either relative to the market.

At this juncture I am willing to bet that BIDU will establish a low around current levels which are roughly 50% of the all time high at 154 and a level that is normally strong support. (E.G. In October 2002 the cash S&P 500 made its bear market low at 768 while 50% of its all time high at 1553 was the 776 level.) The key question then will be how BIDU acts relative to GOOG and relative to the market on the subsequent rally. If its performance lags behind these two yardsticks significantly I would conclude that my long term target of 270 will not be reached during the coming year.

 

Running On Empty

My favorite newspaper, The New York Times, is telling its readers that the world is running out of oil! Above this post you will see the cover of yesterday's The New York Times Magazine. It depicts a fuel gauge on "empty". The cover article by Peter Maass is entitled "The Beginning of the End of Oil". Among other things the article discusses the increasingly popular theory of "peak oil" which predicts a top in world-wide oil production in 2006.

This NYTM cover is solid evidence of overwhelmingly bullish sentiment in the oil market. I think it is telling us that the next big move in crude oil will be downward from here and that the bull market in crude that started from $11 in 1998 is over.

UPDATE: Here is a fisking of this cover story by Freakonomics (Hat Tip: Instapundit)

 

Crude Oil

I thought that October crude oil would rally a couple of dollars from last week's low but the market has rallied more than three dollars. As you can see from the hourly chart above this post October crude has moved to the top of its current box. I think the next big move from here will be downward.

 

Guesstimates on August 22, 8:45 am ET

S&P Futures: I think the market will hold 1217 support and start a rally to 1268.

Bonds: It still looks like the bonds will drop to 115-04 before resuming their rally into the 121-123 zone.

10 Year Notes: I think the notes will drop to 110-16 before the rally resumes.

Eurocurrency: The market will hold supuport at 121.70. The next step up will carry to 125.60.

October Crude: The market moved past the 1/2 point of the current box at 65.30 but I think that was the rally's last gaspand I expect the market to start another down leg today.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

Crude Oil

As you can see in the hourly chart posted above October crude oil has rallied to the 1/2 point of its current box at 65.30. If this market is as weak as I think it is the rally should stop here and crude should drop below 62.00 next week.

 

Guesstimates on August 19, 9:05 am ET

S&P Futures: I think the market will hold 1217 support and start a rally to 1268.

Bonds: It still looks like the bonds will drop to 115-04 before resuming their rally into the 121-123 zone.

10 Year Notes: I think the notes will drop to 110-16 before the rally resumes.

Eurocurrency: The market broke a little below 121.70 support this morning but I expect a close above that level today. The next step up will carry to 125.60.

October Crude: Stopped 20 cents shy of 62.50 yesterday and has already rallied a couple of dollars. The 1/2 point of the current box at 65.30 is resistance and I expect the market to start another down leg from there.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 272 is support; the next move up will reach 343.

 

Still There!

Speculation is all about anticipating changes. That's why I never have anything good to say about commentators who specialize in predicting the past. You just can't make any money doing that unless you are a market commentator yourself!

With this in mind let's take another look at the divergence I discussed yesterday in the the advancing issues data for the New York Stock Exchange.

The daily chart above this post shows the daily number of NYSE advancing issues (in black) and the 5 day moving average of this number (in red). The S&P 500 cash and futures made new reaction lows today. On the other hand the daily count of advancing issues looks like it is making a second consecutive higher low and the 5 day moving average is still above the lowest point it reached during this reaction. This is a clue that the market averages are about to turn upward.

Of course it could happen that we see new weakness tomorrow or Monday, enough weakness to destroy this divergence. But the S&P futures are trading near the bottom of their box and I think the bigger trend is upward for reasons I have repeated many times on this blog. So we are in a situation where it makes sense to anticipate an upturn in the market, relying on the evidence the divergence offers us, instead of waiting for the upswing to get well underway before recognize it.

Success in speculation comes to those who correctly anticipate upcoming market trends. Let's see how this attempt works out!

 

Another Googlestimate

I have been thinking that the 280 level was support for Google. As you can see in the hourly chart above the market broke below this level today. The bottom of the current box is 267 but I don't think GOOG will get near there.

Notice that the August 11 low at 280.62 was about $6.50 below the July 29 low at 286.99. Subtracting 6.50 from the 280.62 low we get 274.10 as a minor support level and reasonable downside target. I have other calculations that say that 271 should be the worst we see on the downside. So I conclude that GOOG will drop into the 271-274 zone and then start the next leg up in its bull market.

 

Crude Oil

Here is an updated hourly chart of the October crude oil futures. As I said in this mornings guesstimate I think the market will soon reach the bottom of its current box near 64.50 and then rally a dollar or two. I also think that the top earlier this week marked the end of the long bull market in crude (ed: He's said this before and was wrong!).

 

More Fun With Baidu

In this post about Baidu.com I said that it would hold the 1/2 point of its box near 94 and then head higher. As you can see from the updated hourly chart above I was dead wrong about this but BIDU has meanwhile dropped to the bottom of the same box. This is much stronger support and I expect it to rally to new highs from here.

 

Eurocurrency

This morning the September eurocurrency bounced off of 122.18 and I thought it was headed higher from there. Cleary I was wrong about that and now I think it will hold the bottom of the current box near 121.80 and head higher from there.

 

Guesstimates on August 18, 8:50 am ET

S&P Futures: I think that 1217 will be support today and that the market will start a rally to 1268 from there.

Bonds: It still looks like the bonds will drop to 115-04 before resuming their rally into the 121-123 zone.

10 Year Notes: I think the notes will drop to 110-16 before the rally resumes.

Eurocurrency: This morning the market broke below support at 122.70 but I think later today it will rally and close back above that level. The next step up will carry to 125.60.

October Crude: Will drop to the bottom of its current box near 62.50 and then rally a dollar or two.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 280 is support; the next move up will reach 343.

 

Divergences

The only oscillator I follow and one that I have used for almost 40 years is the moving average of the number of daily advancing issues on the New York Stock Exchange.

Above this post you see two daily charts. On each chart the black line records the daily number of advancing issues. The red line on the first chart shows the 10 day moving average of the number of daily advances. The red line on the second chart shows the 5 day moving average of this number.

Notice first that the 10 day moving average is lower than at any time since the 1136 low in mid-April. Yet the S&P is only 25 points off of its high. I would expect a much bigger break to be assoicated with this oscillator level so this is a bullish piece of evidence. Next notice that yesterday the market established the low point of its reaction thus far, but the daily number (the black line) made a higher low relative to its 738 reading on August 5. Finally, observe that the 5 day moving average had already turned upward and did not "confirm" the new low for the reaction that was established yesterday.

Given that the market has only dropped a bit below the bottom of its box at 1224 I have to regard the oscillator evidence as definitely bullish and supporting my view that the market is headed for 1268 soon.

 

Crude Oil

As you can see on the hourly chart above September crude oil futures have dropped to the bottom of the current box which was my initial downside target. Now we shall see whether or not the bulls can take control again. If the market is as weak as I think then it won't rally more than a dollar before heading downward once more.

Tomorrow I shall switch my analysis to the October contract so I've put a chart of this contract above this post. The boxes are at the same price levels as those in the September contract. The market has dropped to the 1/2 point of its current box but should not rally past the top of that box.

 

Guesstimates on August 17, 9:05 am ET

S&P: The market broke below the bottom of the box at 1224 but would have to spend a couple of days trading below that level before I would look for a move to 1202, the 1/2 point of the current box. My best guess is that the S&P's will instead rally from here back above 1224 and begin a move to 1268.

Bonds: I think the bonds will drop a box or so from yesterday's high at 116-16 before the rally resumes.

10 Year Notes: I think the notes will drop a box or so from yesterday's high before the rally resumes.

Eurocurrency: Will hold support at 122.70. The next step up will carry to 125.60.

September Crude: I think the market will hold Friday's high at 67.10 and head down to 64.40.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 280 is support; the next move up will reach 343.

 

Bonds and Notes

The updated hourly charts above show that the bonds and notes have both rallied two boxes from last weeks lows. I think today's highs will be followed by reactions of about a box. The bonds are headed for the 121-123 range and the notes for 116 over the next few months.

 

S&P

The hourly chart above shows that the September S&P futures have again dropped to the bottom of the current box. I think this is strong support and that the market will head up from here. The 1268 level, the top of the current box, is the next target.

 

Guesstimates on August 16, 8:50 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: I am expecting a two box rally from the 113-24 low which makes 116-16 the upside target for the next couple of days.

10 Year Notes: I am expecting a two box rally from the 109-27 low which makes the upside target 111-20.

Eurocurrency: Broke support at 123.60 but will hold support at 122.70. The next step up will carry to 125.60.

September Crude: I think the market will hold Friday's high at 67.10 and head down to 64.40.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 280 is support; the next move up will reach 343.

 

Are Americans "Sour" About Everything?

Kevin Hassett thinks so! Take a look at his latest column on Bloomberg.

This is a commentator who sees what I see. Public sentiment is still depressed and this is NOT what one will see when the bull market top occurs. Stocks are headed up big from here.

 

Borrowing Baidu.com

In order to sell a company's stock short you must first find someone to loan you its shares. Borrowing shares like this costs money. Here is an article about the market for borrowed shares of Baidu.com. (Hat tip: Trader Mike)

Evidently, borrowing shares to short BIDU is very difficult and expensive. This tells me that there is a large contingent of traders who think shorting BIDU here is a sure road to riches. I am naturally suspicious of such widely held bearish views. I am sticking with my forcast that BIDU will hit 270 over the next 6-9 months.

 

Guesstimates on August 15, 9:00 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: I am expecting a two box rally from the 113-24 low which makes 116-16 the upside targetfor the next couple of days.

10 Year Notes: I am expecting a two box rally from the 109-27 low which makes the upside target 111-20.

Eurocurrency: Support is 123.60 and the next step up will carry to 125.60.

September Crude: I think the market will hold Friday's high at 67.10 and head down to 64.40.

Gold: Support is at 444 and the next step up will carry to 463.

Google: 280 is support; the next move up will reach 343.

 

Bonds and Notes

Above this post you will see hourly charts of the September T-bond and 10 year notes futures updated through Friday's pit close. Both markets have rallied more than a full box from the lows made last Tuesday.

I think this is telling us that both markets have started the big upswing that I have been expecting these past three weeks. I am predicting that the bonds will move into the 121-123 range and the notes to 116. The drop from the early June high took 9 weeks so I think the coming upswing will last at least that long.

There are as yet no convincing price boxes for the new uptrend and in such circumstances I continue to use the existing boxes you see on the charts. I think the bonds will rally to 116-16 or so in the next couple of days and then drop enough to define a new price box. The notes will probably move to 111-16 to 111-20 before reacting.

 

Eurocurrency Boxes

In this morning's guesstimate I said that the September eurocurrency was on its way to the top of its box at 125.60.

Meantime, the trade number has come out and killed the market. Still, this is only a reaction in an uptrend that is still not complete. I expect support to come in at the bottom of the box at 123.70. If that level fails then the worst we should see is 122.80 or so.

 

Too Bullish?

I keep hearing that there is too much bullish sentiment around about the stock market and that this means that a subtantial drop lies dead ahead. Let me explain why I think this is nonsense.

Here is a chart of what I call the "Rydex Ratio". It comes courtesy of Decisionpoint.com. (You have to be a subscriber to access this data, but I think the $20 monthly subscription fee is well worth it!)

This number is the ratio of money flows into Rydex bull funds to money flows into both Rydex bear funds and Rydex bull funds. Note that the scale on the chart is reversed. Low values indicate bullish public sentiment but show high up on the chart while high values indicate bearish sentiment but show at low levels on the chart.

The important thing to me is that this number measures what amateur speculators are acutally doing in the stock market as opposed to what they or their advisors are saying. Talk is cheap and actions speak much louder than words!

You can see that during the rally from the April lows this ratio showed gradually increasing bullish sentiment but it never got near the level associated with the March 2005 top or the March 2004 top in the S&P 500. Moroever, during the past two months the ratio has shown increasing bearish public sentiment as the S&P has steadily but slowly crept higher.

I think that before the S&P 500 can drop even as much as 5% this ratio will first have to move down below 0.70 (i.e. the line on the chart will have to move upward!).

The Rydex ratio reinforces my conviction that there is too much bearish sentiment out there to allow a stock market top of any importance at current levels.

Update on August 24: Sorry to say, I posted the wrong chart above this post. Take a look at this post on August 24 to see the correct chart and my updated view on the situation.

 

Guesstimates on August 12, 8:30 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: Resistance is now 115-04. So far we've seen a rally of one box so it is too soon to conlude that a new uptrend has started.

10 Year Notes: Resistance is at 110-30. So far the market has rallied a little more than one box so it is still too soon to conclude that a new uptrend has started.

Eurocurrency: The market is now headed for resistance at 123.60.

September Crude: Headed for the top of the next box at 66.30. I still think the next big move will be downward.

Gold: Will stall at the top of the box at 456 but I don't think the market will react more than 1/2 a box.

Google: 280 is support; the next move up will reach 343.

 

Has It Started ?

As you know I am expecting a big move upward in bond and note prices over the next few months. I think the T-bond futures will make it into the 121-123 range and the 10 year notes into the 115-116 range.

You can see today's price action in the updated hourly charts above. I have been wondering whether or not the big move I have been expecting has already begun.

I must admit that I really don't have any conviction about this. In the last couple of daily guesstimates I said that the bonds would have to move above 114-22 and the notes above 110-16 before I would consider the possiblity that the upmove has started. As you can see these levels were broken this afternoon after the 10 year note auction results became known.

From this I conclude that the bonds are headed for the top of the current box at 115-04 and the notes to the 1/2 point of the current box at 110-30. After these levels are reached I will look for one of two developments, either of which would convince me that the bonds and notes are headed up big: the markets blow right past the box levels I have just cited (unlikely) or both markets react a half or 3/4 of a box downward and then turn up once more.

 

Google

In my last post on Google I said that GOOG should find support at 280 and then begin a move to 343. The market reached that support level today and an extended rally should start now.

 

Gold

Earlier in the year I predicted that gold was headed over 500. More recently I have been predicting that December gold was headed for resistance at 449. Today the market blew through that level and so I think the next reaction will begin from the top of its current box near 456.

 

Guesstimates on August 11, 8:45 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: Still likely to drop to 113-06 but for this to happen resistance at 114-22 must hold.

10 Year Notes: Still lkiely to drop to 109-18 but for this to happen resistance at 110-16 must hold.

Eurocurrency: The market will drop to support at 122.70. Resistance is at 124.60..

September Crude: Headed for the top of the next box at 66.30. I still think the next big move will be downward.

Gold: will reach 449 soon and support is at 436.

Google: 280 is support; the next move up will reach 343.

 

Crude Oil

I thought that the top of the box in September crude oil at 64.40 would hold the market but after a reaction crude oil headed even higher. Now I think the market will reach the top of the next box at 66.30 before rolling over.

The top of the long term box is at 70.40 but I don't believe crude will get near there before a bear market begins.

 

Sears Holdings

Here is an updated daily chart of Sears Holdings. The biggest reaction so far was the 25 point drop in early June. A similar drop from the recent high at 163 would carry the market to 138 which is also the 1/2 point of the current box. From there I think SHLD will rally to the top of the next box at 173.

 

S&P

Here is an updated hourly chart of the September S&P futures. It shows all the pit and overnight activity for the past three weeks as well as the boxes for the uptrend that began from the April 2005 pit low at 1136.80.

Monday the market again bounced off the bottom of its current box and I think it is now headed for the top of its box at 1268.

 

Guesstimates on August 10, 8:45 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: Still likely to drop to 113-06 but for this to happen resistance at 114-22 must hold.

10 Year Notes: Still lkiely to drop to 109-18 but for this to happen resistance at 110-16 must hold.

Eurocurrency: The market will drop to support at 122.70. Resistance is at 124.60.

September Crude: Has nearly reached the top of its box at 64.40 and the next big move will be downward.

December Gold: will reach 449 soon and support is at 436.

Google: 280 is support; the next move up will reach 343.

 

Fun With Baidu.com

The markets are dead dull as they await the Fed announcement at 2:15 pm ET today.

In the meantime I thought I would have some fun by taking another look at the price boxes for Baidu. com. I have previously commented on BIDU here and here.

I've posted a 15 minute bar chart of BIDU above together with the 27 point boxes which start from its IPO price of 27.

In my first post on BIDU I guessed that it would find support at 108, the bottom of the box that it closed in Friday. That level was broken this morning and is now temporary resistance. BIDU will now drop to the 1/2 point of its current box near 94 and then stage a big rally.

 

Google

I thought that GOOG would hold support at the 1/2 point of its current box but as you can see from the hourly chart above it didn't.

It now looks like GOOG will drop to 280, the low it made in the after - market following its last earnings announcement.

I still think GOOG will move up to 343 over the next few weeks.

 

Guesstimates on August 9, 8:50 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: Will drop to 113-06 and then begin an extended up move.

10 Year Notes: Will drop to 109-18 and then begin an extended up move.

Eurocurrency: The market has support at 122.70 and the next step upward will carry to 124.60.

September Crude: Has nearly reached the top of its box at 64.40 and the next big move will be downward.

December Gold: Will reach 449 soon and support is at 436.

Google: 292 is support; the next move up will reach 343.

 

Crude Oil

Here is an updated hourly chart of September crude oil futures. The red lines show my estimates of the price boxes for the move up from the 56.50 level. As I said in this morning's guesstimate I think the market is headed for the top of its current box near 64.40.

The blue line you see is the 3/4 division point of the estimated long term box which extends from 40.40 to 70.40. I think a bull market top will be made very near this blue line and near current levels. Then crude will drop at least to the bottom of this long term box and more probably at least $30 from its top.

 

Baidu, Baidu

Take a look at this post on China Net Investor. It offers some Wall Street "wisdom" on Baidu.com, a Chines search engine company that went public Friday. I commented on BIDU a couple of days ago.

The Street hated Google at 100 and now hates Baidu.com at 123. They may be right this time, but I don't think so. This is a bull market and I predict BIDU will hit 270 (which is 10 times its IPO price) within 6 months.

 

Guesstimates on August 8, 8:40 am ET

S&P: The 1227 level is support and the next step up will carry the market to 1268.

Bonds: Will drop to 113-06 and then begin an extended up move.

10 Year Notes: Will drop to 109-18 and then begin an extended up move.

Eurocurrency: The market has support at 122.70 and the next step upward will carry to 124.60.

September Crude: Broke through 62.10 resistance this morning and is now headed for 64.20.

December Gold: will reach 449 soon and support is at 436.

Google: 292 is support; the next move up will reach 343.

 

Here is the Last Note Chart

This chart wouldn't fit into the last post. It is the hourly chart for the 10 year note futures.

 

Bond and Note Boxes

As you know I had thought that the drop from the June 3 top in the bond and note futures was over around July 19, 3 weeks ago and 40 ticks higher than Friday's close in the bonds.

In this post and that one I said that I expected a good close Friday after the initial negative reaction to the employment number. This didn't happen so my best guess now is that somewhat lower prices lie ahead before the big rally I am expecting gets underway. See yesterday's post on decennial cycle to see one reason why I am expecting this big rally.

In any case the first chart you see above shows the bull market boxes on a weekly chart for the upmove in the bonds which began from 103-02 in May 2004. These boxes are 4 points and 3 ticks high. I had believed that the market would hold the bottom of the box near 115-10 but now it looks like a drop to 113-10, the 1/2 point of the next lower box, is underway.

The second chart shows 82 tick price boxes on a daily chart for the 10 year notes. It looks like the market will drop to the bottom of the second box near 109-16 before an extended upmove begins.

The next two charts are hourly charts of the bond and note futures showing the price boxes down from the lower tops made on June 27. The 1/2 division point of the next lower box in the bonds is at 113-01 vs. the 113-10 target implied by the bull market boxes. In this sort of situation the market will often drop to the average of these two targets before turning around. Similary, the bottom of the current hourly chart box in the notes is 109-20, closer agreement with the 109-16 target from the daily chart boxes, and the market will probably stop somewhere between the two targets.

 

At It Again

My favorite newspaper, The New York Times, is yet again trying to throw a wet blanket over the economy's reviving animal spirits.

In this morning's edition you will find an editorial entitled "Some Caveats on Job Growth". The Times' editors assert that if "...you look behind the headline number, the jobs picture - and what it says about the economy - is considerably more nuanced."

Well, good news about the economy just can't simply be good news as far as the NYT is concerned. At some point the paper's editors will be too embarrassed to write editorials like this one. And when that time comes it will also be time to sell stocks.

 

Google + China = Baidu.com

What happens when you mix some Google frenzy with dreams of the unlimited China market? Well, you get Baidu.com. , the Chinese search engine company that just went public Friday at $27. I know nothing about this company but here is a price chart showing the trading in BIDU in 5 minute intervals on Friday. This stock got as high as 151 before closing near 123.

I think we can conclude that "animal spirits" are beginning to recover from the 2000-2002 bear market disaster. But until we see more stock charts like this one I will continue to think that the move up from the 2002 lows has further to go.

I have drawn in price boxes whose boundaries are multiples of BIDU's IPO price of $27. We shall see how helpful they are in the emotional trading that began Friday. For the moment I would judge support in BIDU to be the bottom of its current box at 108.

 

Decennial Pattern in Bond Prices

My 2005 bond market forecast was constructed using two basic elements. The first was George Lindsay's theory of repeating time periods for bull and bear markets and the intervals between important highs and lows. The second was the decennial pattern in bond prices.

A bull market in bonds began in September 1981 and since then we have had two years "ending in 5": 1985 and 1995. The charts above are daily continuation charts for the T-bond futures for those years.

What has amazed me so far in 2005 is how closely the market has followed the average pattern of 1985 and 1995.

In 1985 the market made a high on January 30 while in 2005 the early high came on February 9. In 1985 the market then dropped about 6 points to a low on March 25 while in 2005 the market dropped about 8 points to a low on March 23.

The second big reaction of 1985 began on June 5 while in 2005 it started on June 3. In 1985 the market then droped about 6 points to a low on July 29 and made a slightly higher low on October 7. In 2005 the market has dropped nearly 6 points so far.

Next take a look at the chart for 1995. There was no early reaction that year. But the bonds did start an 8 point reaction on June 2, 1995 which ended on August 15, 1995. As I said earlier, in 2005 the market made a top on June 3 and so far has dropped about 6 points.

I expect the decennial pattern to continue its influence on bond prices for the rest of the year and possibly into 2006. From this hypothesis I draw two conclusions.

First, the bond market rally that began in May of 2004 from the 103 level in the bond futures is not over. I expect the market to rally into the 121-123 range by the end of the year. I should point out that the reactions of 1985 were followed by a bull market top on April 16, 1986 while the big reaction of 1995 was followed by a bull market top on January 4, 1996.

Secondly, the reaction that began from the top at 119-23 in the bonds on June 3, 2005 is nearly over. The 1985 reaction ended on July 29 and a slightly higher low occurred on October 7 while the 1985 reaction ended on August 15.

 

S&P

Here is an updated hourly chart of the September S&P futures.

The reaction from Wednesday's high around 1248 has been quite a bit deeper than I had anticipated. This is a frequent experience because I find it very difficult to guess correctly just where a one - to - three day reaction against a trend will begin and end. I also observe that those who try to make such guesses usually find themselves on the sidelines when big moves get underway.

In any case I now think the market will not go below the bottom of its current box near 1224. The next upswing will move to the top of the current box near 1268.

 

Guesstimates on August 5, 8:50 am ET

S&P: The market is headed for 1257; meantime 1235 is support.

Bonds: The 1/2 point of the box at 114-15 was broken on the employment number this morning, but I thinkthe market has already made the day's low at 114-02 and will close above 114-15.

10 Year Notes: The notes broke below the bottom of the box at 110-17 on the news this morning but I think it has already made the day's low at 110-05 and will close above 110-17.

Eurocurrency: The market has support at 122.70 and the next step upward will carry to 124.60.

September Crude: Resistance is 62.10 and the next move will be towards the bottom of its box at 57.20.

December Gold: will reach 449 soon and support is at 436.

Google: 292 is again support; the next move up will reach 343.

 

Crude Oil

In this morning's guesstimate I said that September crude should halt its rally at 61.50. Instead the market has rallied all the way to the top of its current box and you can see in the hourly chart above.

I think this market will turn down from here.

 

Tomorrow's Employment Report

At 8:30 am ET tomorrow the employment report comes out. As a speculator with a rather short term view I like to be flat in the bond and note futures when the report comes out. The only exception to this rule occurs when these markets are in the middle of a trend that promises further substantial moves ahead.

Right now the bonds and notes I think are scraping the bottom of the drop from the June 3 high. I am looking for a reversal of this trend, not a continuation. I will be flat going into the number.

It is interesting to observe that the bonds and notes often begin or end substantial moves at the time the employment number comes out. My best guess is that tomorrow the market will show an initial negative reaction to the number but then will rally strongly.

 

Gold

I am switching my attention from August gold futures to the December contract. Here is an updated hourly chart of December gold. I have transferred the price boxes dircectly from the August contract without adjusting for the spread between the two contracts. I find this to be the best approach.

I think December gold will soon reach the 1/2 divsion point of its current box near 449. Meanwhile support is at the 1/2 point of the last box near 436.

 

Oops!

Here is an updated hourly chart of the September S&P futures. In my last post I said that the reaction should be complete at the 1241 level but as you can see the market didn't agree. It now looks to be like the S&P's will drop to the bottom of the very short term trading box near 1235. This coincides with the 1/4 division point of the 43.70 point box and is shown as the dotted red line in the chart.

I am very bullish on this market and is such a situation I prefer to be an agressive buyer on reactions so that I won't miss the big upswings I am expecting.

 

S&P reactions

The updated hourly chart above is a follow up to the post you can find here.

The last reaction low in the S&P was 5.20 points higher than the low that preceeded it so I am guessing that this morning reaction will also end 5.20 points above the last low. So we should be heading up from here.

 

Guesstimates on August 4, 8:45 am ET

S&P: The market is headed for 1257; meantime 1234 is support.

Bonds: The 1/2 point of the box at 114-15 is support and the bonds will now swing up at least to 115-26.

10 Year Notes: The bottom of the box at 110-17 is support and the notes will now move up to 111-12.should soon rally to the 1/2 point of the next box at 111-26.

Eurocurrency: The market has bounced off the top of its box near 123.70. Support is at 122.70 and the next stepupward will carry to 124.60.

September Crude: Resistance is 61.50 and the market is headed for the bottom of its box at 57.20.

August Gold: has reaced 436 but should move up to 442 soon. Support is 430.

Google: 292 is again support; the next move up will reach 343.

 

Crude Oil

Here is an updated hourly chart of September crude oil.

The market has bounced off the top of its box at 62.10 and I believe it is now headed for the bottom of the same box at 57.20. This is probably the first stage of a much bigger and more prolonged drop.

 

Eurocurrency Boxes

As you know I think the September eurocurrency futures are headed for 125-126 before the bear market reasserts itself.

Here is an updated hourly chart. The market has nearly reached the top of its current box. In this mornings guesstimate I said that a one box reaction would be normal from there but I mispoke. Only a reaction down to the 1/2 point of the box near 122.80 would be normal. If the market is as strong as I think it is we may not even get a reaction until the 1/2 point of the next box near 124.60 is reached.

 

Guesstimates on August 3, 8:45 am ET

S&P: The market will hit 1257 in a couple of days; meantime 1234 is support.

Bonds: The 1/2 point of the box at 114-15 is support and the bonds will now swing up at least to 115-26.

10 Year Notes: The bottom of the box at 110-17 is support and the notes will now move up to 111-12.

Eurocurrency: The market will now bounce off the top of its box near 123.70. Still higher prices lie ahead but a one box reaction would be normal here.

September Crude: At the moment the market is trading a bit above the top of the box at 62.10 but I still think thatthe next big move from here is downward.

Gold: Upside target is 436 and 450 after that.

Google: In yesterday's Google post I said that 292 is again likely to be support; the next move up will reach 343.

 

Google

Here is an updated hourly chart of Google.

The last time I posted on GOOG it had broken below the 1/2 point of the current box at 292 so I concluded that it was headed for the low of that box near 268. Today GOOG has moved smartly back above the 292 level. What to do?

Even if GOOG is now on its way to my 343 target I think we will see a continuation up to 304 (roughly the 3/4 level of the box) and then a reaction back down near 292. If this sequence of events unfolds I will be watching to see if GOOG starts to trade sideway for a few hours as it approaches the 292 level. If it does I think that would mean that the market is about to turn sharply higher.

Since I am still very bullish on the broad market I think this scenario in GOOG is a better than 50-50 bet.

 

Stock Market Surprise

Take a look at this column by Chet Currier on Bloomberg.

He asserts that the biggest possible surprise to most people right now would be a big advance in stock prices. This is my thinking too but you might like to read Currier's discussion of his reasoning.

 

Nasdaq Composite Bull Market Boxes

Here is an updated weekly chart of the Nasdaq Composite Index.

I think the market has broken out of an 18 month trading range on the upside. This means that the upside potential from here is very big. The most conservative target I see is the black line which is 1/2 the all time high of 5133 and stands at the 2567 level. A more probable target, given the unusual length of the trading range, is the 1/2 division point of the range of the 2000-2002 bear market. This is the blue line you see on the chart and it stands at the 3121 level.

Some people scoff at these sorts of predictions, arguing that they are "extreme" relative to recent experience. But I think this sort of skepticism reflects a fundamental lack of imagination which often stands in the way of success in speculation. One must cultivate the ability to think "outside the box" by imagining outcomes much different from the current market level and trend. Of course such thinking must be disciplined by historical precedent. This is where my box theory comes in.

 

Gold

Here is an updated hourly chart of August gold futures. I am very bullish on gold longer term.

Short term I am looking for this upswing to hestitate briefly at 436, the 1/2 point of the current box, and then move up to 450, the 1/2 point of the next box.

 

Guesstimates on August 2, 8:45 am ET

S&P: The market will hit 1257 in a couple of days; meantime 1234 is support.

Bonds: The 1/2 point of the box at 114-15 is support and the bonds will now swing up at least to 115-26.

10 Year Notes: The bottom of the box at 110-17 is support and the notes will now move up to 111-12.

Eurocurrency: The market didn't quite reach 121.80 on yesterday's reaction but now is swinging up to the top of the box at 123.70.

September Crude: The top of the box at 62.10 was hit yesterday and the market will now begin a substantial drop.

Gold: Upside target is 436 and 450 after that.

Google: 268 is support and the next move up will reach 343.

 

Post Times

Some of you have wondered about the time listed under each post and its relation to the time shown on the hourly charts which is New York City time.

I am posting from the central time zone in the USA. The time shown underneath each post is local time in the central time zone in the USA. So to get the New York City time of each post add one hour to the local time shown underneath the post. Example: the posting time is shown as 10:15 am. The corresponding time in New York City at the time of the post is 11:15 am.

 

Market Habits

Sometimes a market develops a habit which you can exploit in your speculative activities. These habits typically don't last very long and I regard them as minor but useful additions to a speculator's toolkit.

Here is an hourly chart of the September S&P futures. I am very bullish on the S&P (1320-1350 by the end of the year). Shorter term I think a move to the 3/4 point of the current box near 1257 is imminent.

I want to point out the pattern of rising lows which I have underlined in blue. Of course such a pattern has bullish implications. But looking at this in more detail one finds each successive low in this pattern 3.20 to 3.60 points above the last low. So if this pattern is to continue we would expect to see the reaction from 1249 end 3.60 points or so above the last low of 1230.80, namely at 1234.40. The reaction low so far is 1236.00 and frankly it looks to me like the market will not even drop as low as 1234.40.

In this kind of situation one has to ask if holding out for a better entry price ( in other words, waiting for 1234.40 to be reached) is worth it. Well, I think the market will shortly be at 1257. The risk one runs by waiting is that you miss the move entirely. So I would rather pay up 2 or 3 more points to be sure that I don't leave 20 points on the table.

 

CME

Here is a daily chart of the Chicago Merchantile Exchange A stock. I think it is headed over 400.

I like to think of market prices as climbing up and down an irregular pile of "boxes". Looking at this chart you can see that CME has been struggling to climb up onto the top of its last box at 297. It looks to me like CME has succeeded and now will move to the 1/2 point of the same box at 330.

 

IBM

Here is a daily chart of IBM. I think IBM is headed for 106 over the next 6 months.

The market has reacted to the bottom of its current box and the next step upward will carry it to the top of the box near 88.

 

Crude Oil

September crude is approaching my 62.10 target which is the top of the current box. The next big move will be downward from there.

 

Moment of Truth

I think the hardest part of speculation is determing when a good idea has gone bad. I am facing just such a situation in the bonds and notes now.

I thought the September T-bond futures would turn up from the 115-11 low on July 19. My long standing downside target for the drop from 119-23 had been 115-04 and eventually the market hit 114-29 on July 21. I also thought that the notes would hold their target level of 111-00 with the 1/2 point of the box being 110-30.

As you can see from the hourly charts above this post both markets have dropped 1/2 box further than I had expected. Both have taken out the July 21-22 lows. Should I abandon my forecast of much higher prices in both the bonds and notes?

One rule I always like to repeat to myself is never to let a small, adverse flucuation unduly influence my view of the big picture. Right now I am still quite confident that the bonds will rally to 121-123 and the notes to 116. This is largely based on my feel for the state of market sentiment which I think right now is quite bearish. I also know that the bonds are trading near the low of a 4 point bull market box and this in conjunction with my read on market sentiment gives me confidence in my longer term bullish view.

As far as market tactics go, I think the downside breakout in the notes Friday and in the bonds today will soon be reversed. I expect the bonds to bounce off of the 1/2 point of their current box and the notes to bounce off of the bottom of their current box. If my basic view is correct then I think both markets will trade higher for the rest of the week.

 

Guesstimates on August 1, 8:50 am ET

S&P: The market will hit 1257 in a couple of days; meantime 1232 is support.

Bonds: The bonds won't go below last week's low at 114-29 and will soon rally back to the top of the current box at 116-18.

10 Year Notes: I don't think the notes will go much below the 1/2 point of the box at 110-30 and the market will soon rally to the 1/2 point of the next box at 111-26.

Eurocurrency: A reaction down to the bottom of the box near 121.80 would be normal but the market will soon reach the top of the box at 123.70.

September Crude: Support is at 59.70 and upside target is 62.10.

Gold: Upside target is 436 and 450 after that.

Google: 268 is support and the next move up will reach 343.